Parent of Frost says earnings rose in '12

Images of the Frost Bank Building located at 100 West Houston Street on Friday, Apr. 6, 2012. Kin Man Hui/Express-News.

Images of the Frost Bank Building located at 100 West Houston Street on Friday, Apr. 6, 2012. Kin Man Hui/Express-News.

Photo: Kin Man Hui, San Antonio Express-News

Photo: Kin Man Hui, San Antonio Express-News

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Images of the Frost Bank Building located at 100 West Houston Street on Friday, Apr. 6, 2012. Kin Man Hui/Express-News.

Images of the Frost Bank Building located at 100 West Houston Street on Friday, Apr. 6, 2012. Kin Man Hui/Express-News.

Photo: Kin Man Hui, San Antonio Express-News

Parent of Frost says earnings rose in '12

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Frost Bank parent Cullen/Frost Bankers Inc. has repeatedly cited burdensome government regulations, a sluggish economy and a low interest rate environment as challenges for its business.

Yet the San Antonio-based financial holding company manages to produce solid results quarter after quarter.

The company reported Wednesday that it earned $238 million last year, up 9.4 percent from $217.5 million in 2011. On a per-share basis, earnings were $3.86 last year, vs. $3.54 in 2011.

“Despite regulatory and economic headwinds, 2012 was our best year ever for earnings,” Cullen/Frost Chairman and CEO Dick Evans said on a conference call with analysts. “We posted solid results, grew customer relationships and managed expenses during a challenging revenue environment.”

Cullen/Frost's fourth-quarter results also exceeded analysts' expectations. The company earned $60.2 million, or 97 cents a share, last quarter — 4 cents above the consensus estimate of 18 analysts polled by Thomson Financial Network. By comparison, Cullen/Frost earned $55.4 million, or 90 cents a share, in the same period in 2011.

Assets at Cullen/Frost topped $23.12 billion at the end of last year, the first time in the company's history they have reached that level. Assets grew by $2.8 billion last year without Frost making any acquisitions.

“This organic (growth) isn't bad,” Evans quipped.

Total loans averaged $8.46 billion last year, a 5.2 percent increase from $8.04 billion in 2011.

“The fourth quarter was the best quarter for loan commitments since the third quarter of 2008, and December was our best month ever for new commitments,” Evans said.

Total deposits, meanwhile, jumped 13.6 percent to an average of $17.29 billion, from $15.22 billion in 2011.

Evans credited the company's efforts to add new customers during the recession for contributing to the increase in deposits.

Still, Cullen/Frost's net interest margin — a measure of the difference between what it earns in interest on loans and what it pays in interest on deposits — fell to 3.48 percent last quarter from 3.76 at the end of 2011 and 3.54 in last year's third quarter.

“It's nice to see that they can offset that margin decline with loan growth to keep earnings headed higher,” said Brady Gailey, an analyst with Keefe, Bruyette & Woods Inc.

Gailey has Cullen/Frost rated as “underperform,” but he said that's because of its stock price rather than its performance. It closed Wednesday at $59.24, up 1.1 percent for the day.

“Frost is a phenomenal bank,” Gailey said. “I just have a hard time with the stock price. You have a stock that is almost $60 a share. ... It's just a very expensive stock (relative to earnings). I like the company, I like the management team. But I'm nervous about owning the stock just because of its relatively rich valuation.”

In the fourth quarter, Cullen/Frost set aside $4.1 million for possible loan losses. In the same period in 2011, it didn't set aside anything.

The company charged off nearly $5.1 million in bad debts in the fourth quarter, compared with $5.3 million in the year-earlier period.

Cullen/Frost had $105.2 million in bad loans on its books at the end of last year, compared with $120.9 million at year-end 2011.

The company's Tier 1 risk-based capital, a measure of financial strength, was almost 13.7 percent at the end of last year. That was more than enough to make the bank well capitalized.